Hey there accounting fans! Today we have a special guest on the blog and her name is Tracy Hemingway AKA the Debt-free Diva!!
Tracy is a dear friend of mine (we do Salsa together! – Yes I have a social life outside of accounting) and over the past three years she has successfully paid down consumer debt worth about $ 100,000 with an average annual interest rate of 22%! She is here today to share her very inspiring story with the rest of us!
Hi Tracy, thanks a lot for agreeing to share your story with all of us! So let’s start from the beginning, how DID you manage to accumulate so much debt?
Hey Sam, no problem! I love sharing my story with others. Ok, so let’s wind the clock back to 2010 when I was 18 – young, carefree and invincible!!! I set up my own company back then, managing a cheerleading gym, training kids and teenagers in cheer routines and stuff. Business was good actually. I was making a decent amount of sales and I had opened up gyms in Hamilton, Tauranga and Rotorua.
Wowee! A business owner at 18 with branches across the upper north island? Not many people can lay claim to that! So, what happened then?
Well, despite the growth in business sales, the business itself was barely profitable as a bulk of my revenue had to go the franchise holder (whom I won’t name for obvious reasons) of the business. It was hard dealing with the step costs associated with running the business as well as when more kids came in, I had to hire more trainers which further ate into the business’ profit margin. In a ‘good’ year I was lucky to take home about $ 20,000 per annum.
Oof, that’s rough! $ 20,000 per annum is waaaay lower than minimum wage! So how did you support yourself then? Were you living with your parents?
Actually, I was living as an independent young adult! I had made the decision to strike out on my own early on in life and damn it, I was determined to live my life on my own terms! But because I didn’t have mum and dad to support me, I had to turn to credit cards to help support my lifestyle. I was literally living on borrowed money.
Yikes, that’s intense! Did you at any point worry about your credit situation or try to do something about it?
Not really. I was so caught up in running my business and I was super passionate about what I was doing so I didn’t think too much about my credit situation and then my debt just started to snowball! Sure enough I had people telling me that my business wasn’t sustainable but I guess I was just looking at it through rose-tinted glasses and didn’t want to listen to reason.
So what happened then, what finally made you realise that you had a mountain of consumer debt to deal with?
Back in 2016 the doctors found a tumor growing in my throat – so I had to have surgery to remove it. Fortunately it wasn’t malignant (yay!) but it did mean that I had to recuperate and I couldn’t manage my gym. I guess it was then that I started thinking about my life and about what I really wanted to do and I realised that maintaining my business wasn’t going to help me live the life I wanted to live. That, and my then boyfriend left me – that’s usually a good enough motivation for most people to get their life together!
Ok, so there you were, in 2016, with a HUGE amount of debt in your name. What was the first thing you did?
The first thing I did was to apply for insolvency and liquidate my company. I sold off all the gym equipment that I had and managed to raised about $12k out of that. It was then that the Official Assignee (ed: otherwise known as the liquidator) told me that I would have to apply for personal bankruptcy as I had close to $100k in consumer debt from all the credit cards I had used to support my lifestyle.
Bankruptcy is a big and scary word! Did you go through with it?
Mate, when I’ve had a tumor removed from my throat, got dumped by my boyfriend and liquidated my business – there isn’t much that could have scared me then. But no, I didn’t go through with it. I was prepared to if not for one of the bankruptcy clauses that stipulated I could not own luxury items – which is fine by me, BUT they had to classify pet dogs as a luxury item.
Oh, pet dogs are luxury items?
Yeah, it’s the most insane thing! I.Could.Not. Let my Teddy go (Teddy is my dog by the way). So I took the forms home, thought long and hard about it and I chose Teddy over bankruptcy and I vowed to myself that I would pay down this debt!
Whoa, that’s gutsy – we ARE talking about a $100k debt here right? Did you get any help at all from WINZ (Work and Income NZ – sort of like the social welfare for Kiwis) or apply for hardship status from the banks?
That’s right! $100k at an average interest rate of 22%. Oh boy, it was going to be fun! I did approach WINZ for assistance but apparently because I was a business owner I could not qualify for any help at all. The banks, well, I did try to apply for hardship but they wouldn’t let me get on it because I had been meeting all my repayments on time – in fact the bank officer even insinuated that if I missed some payments I might be able to qualify for hardship!
See, I might be an accountant but even I don’t get how banks work. Anyway, so there you were, 24 years old with a consumer debt of $100k at an interest rate of about 22% per annum. What was the first thing you did?
The first thing I did was to sell off all my stuff! All the expensive clothes I had, all the things I had collected over the years when I went travelling. I sold off all my furniture, everything – if it wasn’t bolted down I just sold it off! All in all I managed to raise about $4,500 from selling all my stuff. It was really hard letting go of some of the clothes that I had then but now when I look back at it, I can’t believe that I was so hung up on those clothes in the first place!
That sounds like some literal downsizing!
Yeah, it sure was! I literally had to downsize! I went from living in a $300 a week flat to a $130 a week flat to cut costs. I challenged myself to spend less than $40 a week on groceries. I
even sold off my BMW and swapped it out for a cute little Suzuki!
Wait, you drove a Beemer?
Yeah, I was living pretty large back then….but anyway, the point is I really cut down on all the unnecessary stuff and that allowed me to be really laser-like in my focus on my goals. And that goal was to pay down ALL of my debts.
Wow, that’s pretty audacious! What did you do next?
The next thing was to get a job – the first full-time job that I ever had in my life. I was fortunate enough to land a position as an account manager doing sales for a local office supplies company. It was such a different experience, working for someone else instead of being the boss. But it was a good experience.
That’s a really smart move – did that pay you enough to pay down your debts?
Hahahaha! I wish! It was a great job, but no, it didn’t pay enough to help me pay down my debts. So I began to side hustle – hard. You name it, I’ve done it: Uber Eats Driver, Lime Juicer, Online Surveys, Dog Walking, Speed dating, Office Cleaning, Face painting – like literally anything that could give me some extra $$ I was onto it! I was working a full time job, but as soon as I left work, I would start working my side hustles. But even with my side hustles, I remember taking home my first ever paycheck and after paying off all the minimum repayments on my debts I only had like $0.23 left to spend! I felt like I was a Hamster on a wheel, running but going nowhere because of all the interest I was paying on my debt.
Whaaaaat, that’s insane! This blog is my side hustle but man, I can’t imagine having that many side hustles! How did you manage?
Like I said, I was determined to increase my Income and push down my Expenses – so I did what had to be done. But yeah, I will admit it was hard, it was stressful and it was super exhausting. So I made sure that I had money put away to treat myself. Once a year, I would travel for a couple of weeks to unwind, de-stress and help me re-focus on my goal of paying off my debt.
Travelling is pretty expensive though, how did you manage to do that while keeping your expenses low?
By being really cheap about my travelling! For example, I went to Thailand for a trip and I got the cheapest flight tickets, avoided the expensive tourist-y areas and ate some really delicious $0.50 Pad Thai! Travelling on a budget is nothing new but many people think that travelling is this luxurious, expensive thing when it really doesn’t have to be.
I think it’s really impressive that in such a short amount of time you managed to bump up your income, push down your expenses, go travelling all while paying off your debts! Surely there are some other tricks you have used?
Well, actually yeah, balance transfers are an AMAZING thing. Banks will literally ask you to transfer your credit from another bank’s credit card over to them and many of them will offer you interest-free for 12 months. Balance transfers helped me heaps in keeping my interest costs low which prevented my debt from ballooning. I mean, obviously you don’t want to get into that much debt in the first place, but if you’ve made some bad money choices, at least you can make use of balance transfers to help you get out of debt. (ed: Money Hub NZ has a pretty good article on balance transfers and how you can make use of them).
Cool, so what are some important milestones you have achieved along your journey?
I think the first one was getting promoted in my job. I got promoted to their new business sales team where a bulk of the salary was commissioned based – and for a person like me (ed: Tracy is basically a natural salesperson) it was the best thing ever! The sky was the limit! In the year that I got promoted I made about $90k, not including the $$ i’ve been getting from my side hustles – so yeah, that really helped to put me in a more comfortable position. The next important milestone was that I had basically paid down almost 60% of my debt by the end of 2018! That was important to me because it was basically a validation of everything that I had worked so hard to do.
It’s really amazing that you have managed to do so much in a relatively short period of time! What is your secret?
Well, there isn’t any secret really – I just knew what I had to do (pay down my debts) and I did EVERYTHING I could do to do it. I call it ‘intentional living’ meaning that I lived with a very clear intention of what I wanted and I worked really hard towards it. It took a lot of dedication towards my goal of being debt free. It often meant that I had to say no to invites and social hang outs simply because I had to work, or I wanted to save on expenses.
How about budgeting? What Strategies did you use?
I’m a bit of a money nerd so I’ve got an excel spreadsheet that tracks all my income and expenses. I use this to budget and plan my finances. By the end of the month, if there is any extra money left in my budget – I don’t carry it forward to the next month, I shoved it into my savings! But that being said, a budget should not be like a diet, you should always make some room in your budget to spend on things important to you (like getting your hair done or travelling). By the end of the day, everyone is different and only you can determine what is important to you.
(Runs fingers through my short-cropped hair) Haha – I hear you there, getting my hair done is obviously not on my list, but I would spend good money on boardgames! Anyway, let’s talk money – so in 2018, how much money did you make from your job AND your side hustles?
Like I said, I had just been promoted to the commission based sales team so I was pulling in about $95,000 in 2018 plus maybe about $200 a week from Uber Eats/Lime Juicing (That’s about $9,000 a year) and another $500 a year from doing online surveys. So overall I was pulling in close to $100,000 (and possibly a bit more) in 2018 alone.
And all of that money went to pay off your debts?
Well, yeah, for the most part! Its safe to say that more than 75% of my annual income went to paying off my debt!
Amazing – so now that you are debt-free, what’s next?
Oh believe me, I may be debt free now but I’m not going to stop living the frugal lifestyle I am living! I have grown accustomed to living like
this and I’m not going to change anytime soon. It is surprising how even though i’ve paid off my debts, I still am very, very selective about how I spend my money. I guess the next thing on my list is to buy a house so I’m going to be saving up my first deposit to pay down on my very first piece of property!
Ain’t that the dream eh? What is your advice to all our readers out there that are struggling with debt?
My advice would be to have a plan, increase your income, decrease your expenses and just be really focused in paying the damn thing down!
So Tracy, I hear that you have also just started a new side hustle, giving financial coaching to individuals who are struggling with their finances – do you want to talk more about that?
Definitely! I’ve started a small business on the side called Debt-Free Diva and I started it so I could share the lessons I’ve learned on my journey with other individuals who are working hard to meet their financial goals. I offer one-on-one financial coaching work with clients step by step to help them take control of their finances. You can get more information at www.debtfreediva.co.nz or DebtFreeDivaNZ on Instagram..
That’s really great Tracy! Well, thank you so much for joining us here today, do you have any last words for our readers?
Thanks so much for having me over Sam! My last words would have to be to anyone who is struggling is that it is possible – but it’s a marathon not a sprint. It isn’t going to be easy but it is 100% worth it. I can’t stress enough that you simply have to just keep going and keep aiming for that dream. Have a plan and focus on that plan and don’t be afraid to reach out and ask for help if needed.
Ed’s note: Since the publication of this interview, Tracy has also been interviewed by the folks at Stuff! Check out their (much shorter) write up on her work over here.